UPDATE 2-Skyservice Airlines shuts down operations

Wed Mar 31, 2010 3:19pm EDT

* In receivership, cancels all remaining flights

* Business hit by high debt, market changes

* Sunquest Vacations organizes replacement flights (Adds details, background)

By Susan Taylor

OTTAWA, March 31 (Reuters) - Privately held Skyservice Airlines said on Wednesday it was shutting down operations after a Canadian court appointed a receiver, granting the request of lead secured creditor Thomas Cook.

The charter airline said in a brief statement that it could no longer operate profitably because of changes in the Canadian vacation tour market and its high debt.

The Toronto-based company's total debt load was not disclosed. Earlier this year, Sunquest Vacations' parent, Thomas Cook Canada Inc, took over C$8.8 million ($8.7 million) in Skyservice debt from another lender, said Thomas Cook spokesman John Lute.

Skyservice was unable to restructure its business and by March 31 could no longer meet its financial obligations, Sunquest said in a press release.

Skyservice has canceled all remaining flights scheduled to depart Canada in April, including one flight set to leave on Wednesday for the Dominican Republic.

It has operated aircraft for Sunquest and other tour operators, including Signature Vacations and Sunwing Vacations, between Canada and destinations in the Caribbean and Mexico since 1995, Sunquest said.

Sunquest said it has organized replacement flights, largely with Air Transat (TRZb.TO) and newcomer Enerjet, for all passengers affected by the suspension of operations.

Shares of Air Transat jumped more than 8 percent to C$13.64 on the Toronto Stock Exchange on Wednesday.

Skyservice's troubles stem partly from an industry shift about five years ago, when scheduled airlines added tour operations to their business, which cut demand for seats on on its charter planes.

It also faced growing pressure as domestic airlines such as Air Canada (ACa.TO) and WestJet (WJA.TO) added capacity, or available seat miles, said Robert Kokonis, managing director of AirTrav Inc, an airline consulting company.

"Changes in the global and Canadian tour operator marketplace really left Skyservice in a position where it did not enjoy the same strong market position," Kokonis said.

A bruising slowdown in demand for air travel during the recession also sparked cost-cutting by carriers that had to compete harder for business.

Skyservice was founded in 1986. According to its website, it employed over 1,200 staff and flew more than 20 commercial aircraft to destinations in Canada, the United States, the Caribbean, Mexico and Europe.

"Thomas Cook and Sunquest did everything possible to assist Skyservice and limit the effect of its financial difficulties on travelers," said Michael Friisdahl, chief Executive of Thomas Cook North America.

"Unfortunately, faced with unprecedented difficulties in the airline business, Skyservice could not return to viability."

($1=$1.015 Canadian) (Reporting by Susan Taylor; editing by Rob Wilson)

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